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Tim Hortons will become household name around the world, CEO Daniel Schwartz says, Hollie Shaw

There is no reason that the rest of the world shouldn’t be able to experience what Canadians get to experience at Tim Hortons every day…On the international front, stay tuned — it’s still early days

Financial Post
February 17, 2015

Tim Hortons will become household name around the world, CEO Daniel Schwartz says
Hollie Shaw

After cutting 350 jobs late last month from Tim Hortons’ 2,300 employees at its headquarters, regional offices and distribution centres across Canada, Daniel Schwartz, CEO of the recently formed Restaurant Brands International Inc.. said there are no more layoffs planned. The Canadian Press/Sean Kilpatrick

TORONTO – Making Tim Hortons a household name around the world is its new management’s prime growth goal since its blockbuster $12.5-billion merger with Burger King in December.

But will a double-double with a chocolate dip doughnut resonate well with consumers in Bangalore?

“Why this deal makes sense is not about synergies and cost reductions,” Daniel Schwartz, former Burger King chief executive and CEO of the recently formed Restaurant Brands International Inc., said in an interview Tuesday before the fourth quarter analysts’ call — its first fiscal period as a merged entity.

“It’s all about growth, and bringing Tim Hortons around the world. We are going to be working really hard to accelerate the pace of the Tim Hortons brand around the world, finding great partners and exciting places.”

Despite the overarching goal, Mr. Schwartz would not elaborate on what market the company intends to tackle first, or how many Tim Hortons units it might add, but noted since Burger King was taken over by 3G Capital in 2010, the company was able to vastly step up the pace of its expansion. In the fourth quarter the fast-food restaurant brand debuted in India and France.

“It took several years and a lot of hard work, but when we look at the Tim Hortons brand in Canada, we think there is no reason that the rest of the world shouldn’t be able to experience what Canadians get to experience at Tim Hortons every day.”

The combined chain has US$23-billion in sales and 19,000 restaurants around the world, which includes more than 4,600 Tim Hortons locations.

Mr. Schwartz is a former partner at the private equity firm 3G Capital, majority shareowner of the new company, and former CEO at Burger King whose reputation as a ruthless cost cutter preceded him before the deal to buy Tim’s was struck last year. After it acquired Burger King in October 2010, the number of employees at the fast food chain was cut to 35,000 from 39,000 by the end of that year; by the end of the following year, Burger King had 12% fewer employees than it did prior to 3G’s acquisition.

3G also replaced corner offices with cubicles and cancelled Burger King’s annual million-dollar party in Italy. Since acquiring Burger King in 2010, 3G’s team has tripled the company’s profit margin to 61%.

After cutting 350 jobs late last month from Tim Hortons’ 2,300 employees at its headquarters, regional offices and distribution centres across Canada, Mr. Schwartz said there are no more layoffs planned. By that time, Tim Hortons had frozen departmental spending on office supplies and expedited shipping.

“What we said from the beginning is that we plan to manage these brands as standalone independent brands with their own teams and their own focus on leadership, marketing, development and operations,” Mr. Schwartz said Tuesday.

“We said from the beginning that we would see some synergies in some of the back of the house areas — finance, legal, IT, human resources — shared services areas and that is really where we made some reorganizational changes. They are all done. We didn’t make any changes to anything business facing, franchise facing, operations facing. What we did was consistent with what we said.”

The quick-service chain lost US$514.2-million, or US$2.52 per share in the quarter, compared with a profit of US$66.8 million (US19¢) a year ago as it felt the impact of the acquisition.

The loss included a US$143-million loss related to derivatives and US$94.3-million related to the Tim Hortons deal and restructuring costs.

Revenue rose to US$416.3-million, up from US$265.2-million. Sales at restaurants open for more than a year rose 4.1% at Tim Hortons and 3% at Burger King.

The results cover the period from the merger closing date of Dec. 12 to the quarter end of Dec. 31

“In the U.S., we are going to be working with some existing partners and some new partners to accelerate the pace of that growth. On the international front, stay tuned — it’s still early days.”

Long the market laggard, Burger King is looking up these days relative to McDonald’s, which reported a drop in fourth-quarter earnings and sales last month and vowed to save money by slowing down restaurant openings this year. It aims to woo customers back by offering more customizable burger and sandwich offerings. Last week, McDonald’s posted a worse-than-projected decline in global sales for January — a same-store sales drop of 1.8% at established outlets, amid continued fallout from a slump at its Asian restaurants.

U.S. sales rose 0.4%, but the region including Asia, the Middle East and Africa plunged almost 12.6%. A TV report in China showed one of McDonald’s major suppliers allegedly repackaging expired meat. The brand has been hurt by consumer perceptions over the incident, McDonald’s said.

Robert Carter, executive director at market research firm NPD Group, expects Restaurant Brands will extend Tim Hortons’ reach into the U.S. market before venturing into new international zones.

“I think the prospects of them growing on the back of the Burger King infrastructure in the U.S. is very positive,” he said.

“They will be able to rely on metrics from a local market standpoint. I think they will probably start to offer opportunities to existing franchisees with the Burger King system, and go from there.”

But the biggest question mark could be whether a Canadian coffee and bakery brand facing many competitors in the same space — Dunkin Donuts, Panera Bread, Subway and McDonald’s — will resonate enough with U.S. and international customers.

“A good question here will be what is the unique positioning relative to others in the category?” Mr. Carter said. “It is a crowded marketplace.”

That is particularly important given NPD’s prediction of slower sales growth in the quick-serve restaurant segment, about 2% for the overall category in Canada and the U.S. in 2015, compared with 4% for the year in 2014.

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